A crypto wallet is an application that performs a similar function to that of the normal wallets we use in our everyday life. But instead of storing fiat currencies, crypto wallets are used to store and manage cryptocurrencies efficiently. However, it does not mean that all the crypto coins get dubbed into the wallet. Instead, it only stores the passkey that enables you to make transactions. There are mainly two types of wallets that people use mostly: hot and cold wallets. In this article, we will look into these wallets, what differentiates them, and which wallet is most suitable for you.
Hot Wallet & Its Key Features
Hot wallets are a crypto storage solution that maintains an active connection to the internet. You can easily access it from anywhere. These wallets are ideal for conducting day-to-day transactions and are suitable for traders who require quick access to their cryptocurrencies. The wallet’s user-friendly features make it perfect for beginners who are looking to learn how a crypto wallet works. Also, these wallets can be easily accessed through the browser or applications in your system. Some of the key features of hot wallets include
- Accessibility: Hot wallets can provide you easy access to your funds from anywhere and anytime.
- Convenience: Hot wallets allow you to conduct swift and efficient transactions.
- Real-Time Updates: Hot wallets allow users to monitor their account balance and track the real-time price of their assets.
- User-Friendly: Hot wallets provide a user-friendly interface and are ideal for beginners.
- Instant Trading: Hot wallets are perfect for people who conduct trades daily.
Pros & Cons Of Hot Wallets
Like any other software, hot wallets also have a set of advantages and disadvantages associated with them. Here, we will look into a few of them, so you know exactly what you’re getting by utilizing them.
| Pros | Cons |
|---|---|
| Convenient to use. | Susceptible to hacking. |
| User-Friendly Interface. | Vulnerable to viruses, malware, and ransomware. |
| Suitable for day-to-day trading. | Web-based hot wallets often require trusting 3rd parties with your private keys. |
| Can be easily integrated with exchanges. | |
| Free to use |
Cold Wallets & Its Key Features
A cold wallet is a device or method used to store private keys of cryptocurrencies offline. This helps in making them more secure and reduces hacking risks associated with hot wallets. The cold wallets are made in such a way that they are not susceptible to any cyber threats. This is one of the best ways to store your crypto in cases of long-term investments. The key features of a cold wallet include
- Offline Storage: Cold wallets are not connected to the internet, making them safe from numerous online threats like hacking.
- Strong Encryption: Cold wallets come with a strong encryption method that safeguards your private keys from external access.
- Backup & Recovery: In case of loss of a cold wallet, you can recover your funds through various methods like seed phrases.
- Long-term Storage: Cold wallets are ideal for storing cryptocurrencies in terms of long-term investments.
- Secure: Cold wallets have specialized chips in themes that store your private keys safely.
Pros & Cons Of Cold Wallets
Like the hot wallets, the cold wallets also have its own set of merits and drawbacks. Here, we will look into some of them to help you understand what exactly you’re getting by using cold storage.
| Pros | Cons |
|---|---|
| Not susceptible to internet threats like hacking. | Expensive to buy. |
| Tamper-resistant. | Physical storage can be inconvenient for some users. |
| Avoids smart contracts. | Technical skills are required to configure some cold wallets. |
| Ownership control fully belongs to its users. | Less convenient for day-to-day usage. |
| Ideal for long-term investment. | Loss of access in case of damage or loss of asset. |
| Losing your recovery phase means permanent loss of your asset. |
Hot Wallets Vs Cold Wallets: Key Differences
| Properties | Hot Wallet | Cold Wallet |
|---|---|---|
| Price | Cheaper as they store crypto on the exchange itself. | Expensive as additional hardware needs to be purchased for storing coins. |
| Security | Less safe as they are stored on the exchanges | More safer as they are securely stored offline |
| Storing | Hot wallets can store almost all types of cryptocurrencies. | Only reputed crypto coins can be stored in cold wallets. |
| Connectivity | Hot wallets maintain 24/7 connection to the internet | Can switch between the online and offline mode in case of transfer of coins. |
| Asset Loss | If the exchange gets closed, you won’t be able to access your coins. | Even if the exchange closes, your crypto assets will be safe with you. |
| Access | Hot wallets are suitable for trading | Not suitable for trading as they are slower than hot wallets. |
Which Wallet Should You Choose?
Choosing a crypto wallet is one of the important decisions in trading. If you want to purchase popular crypto coins and keep them for long-term investment, then a cold wallet is the best option for you. However, if you’re planning to trade or swap your coins daily, then it would be better to choose a hot wallet.
Also, if you have the habit of forgetting things often, it can be difficult to maintain a cold wallet as they can misplaced easily. There is also the case of the seed phrase. To overcome this, you might need to switch to a cold wallet even if you’re going for the long haul. For further updates regarding wallet features and other related aspects, stay tuned.
